SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 000-25327
MEDE AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3270245
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
90 Merrick Avenue
Suite 501
East Meadow, New York 11554
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 516-542-4500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 par value,
12,946,124 shares outstanding as of March 5, 1999.
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 (unaudited)
and June 30, 1998
Consolidated Statements of Operations for the Three Months Ended
December 31, 1998 (unaudited) and 1997 (unaudited)
Consolidated Statements of Operations for the Six Months Ended
December 31, 1998 (unaudited) and 1997 (unaudited)
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1998 (unaudited) and 1997 (unaudited)
Notes to Consolidated Unaudited Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Deficit
December 31, December 31, June 30,
1998 1998 1998(FN1)
------------ ----------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,384 $ 2,950
Accounts receivable, less allowance
for doubtful accounts of $468 and
$997, respectively 8,838 7,920
Formulary receivables 3,805 2,341
Inventory 184 211
Prepaid expenses and other
current assets 629 537
---------- ---------
Total current assets 15,840 13,959
PROPERTY AND EQUIPMENT - Net 5,575 4,711
GOODWILL - Net 42,353 34,753
OTHER INTANGIBLE ASSETS - Net 7,477 5,501
OTHER ASSETS 3,695 470
--------- ---------
TOTAL $ 74,940 $ 59,394
---------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 3,580 $ 3,630
Accrued expenses and other
current liabilities 8,116 7,715
Current portion of long-term debt 226 269
--------- ---------
Total current liabilities 11,922 11,614
--------- ---------
LONG-TERM DEBT 55,642 41,055
--------- ---------
OTHER LONG-TERM LIABILITIES 184 194
--------- ---------
SERIES A REDEEMABLE CUMULATIVE PREFERRED
STOCK:
$.01 par value; 250 shares authorized;
240 shares issued and outstanding
(aggregate liquidation value of
$23,996 plus accrued dividends) $ 8,126 32,423 31,223
--------- ---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value;
30,000 shares authorized;
5,685 shares outstanding as of
December 31, 1998 and June 30,
1998 76 57 57
Additional paid-in capital 51,370 27,092 25,584
Accumulated deficit (52,380) (52,380) (50,243)
Deferred compensation -- -- (90)
--------- ---------- ----------
Total stockholders' deficit $ (934) (25,231) (24,692)
--------- ---------- ----------
TOTAL $ 74,940 $ 59,394
(FN1) The consolidated balance sheet as of June 30, 1998 has been taken from the
audited financial statements at that date.
</TABLE>
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MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUES $ 12,974 $ 9,849
--------- ---------
OPERATING EXPENSES:
Operations 4,902 3,942
Sales, marketing and client
services 3,201 2,432
Research and development 1,164 1,059
General and administrative 1,315 1,107
Depreciation and amortization 2,191 1,698
--------- ---------
Total operating expenses 12,773 10,238
--------- ---------
INCOME (LOSS) FROM OPERATIONS 201 (389)
INTEREST EXPENSE, Net 1,185 915
--------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (984) (1,304)
PROVISION FOR INCOME TAXES 68 12
--------- ---------
NET LOSS (1,052) (1,316)
PREFERRED STOCK DIVIDENDS (600) (600)
--------- ---------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (1,652) $(1,916)
--------- ---------
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.29) $ (0.34)
--------- ---------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING--BASIC AND DILUTED 5,685 5,679
--------- ---------
</TABLE>
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUES $ 24,980 $ 19,090
--------- ---------
OPERATING EXPENSES:
Operations 9,695 8,227
Sales, marketing and client
services 6,131 4,817
Research and development 2,270 1,865
General and administrative 2,578 2,168
Depreciation and amortization 4,085 3,396
--------- ---------
Total operating expenses 24,759 20,473
--------- ---------
INCOME (LOSS) FROM OPERATIONS 221 (1,383)
INTEREST EXPENSE, Net 2,274 1,570
--------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,053) (2,953)
PROVISION FOR INCOME TAXES 84 24
--------- ---------
NET LOSS (2,137) (2,977)
PREFERRED STOCK DIVIDENDS (1,200) (1,200)
--------- ---------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (3,337) $ (4,177)
--------- ---------
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.59) $ (0.74)
--------- ---------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING--BASIC AND DILUTED 5,685 5,677
--------- ---------
</TABLE>
<PAGE>
<TABLE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
December 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,137) $ (2,977)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,276 3,571
Provision for doubtful accounts 187 34
Non-cash compensation expense 90 --
Changes in operating assets and liabilities
net of effects of businesses acquired:
Accounts receivable (323) (1,079)
Formularly receivables (1,464) (342)
Inventory 27 27
Prepaid expenses and other current assets (48) 1
Other assets (846) 10
Accounts payable and accrued expenses
and other current liabilities (1,521) (3,747)
Other long-term liabilities (10) 552
---------- --------
Net cash used in operating activities (1,769) (3,950)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired (11,428) (10,674)
Purchases of property and equipment (798) (304)
Additions to goodwill and other
intangible assets (584) (234)
---------- --------
Net cash used in investing activities (12,810) (11,212)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds under Credit Facility 14,400 15,175
Principal repayments of debt (132) (260)
Principal repayments of capital
lease obligations (255) (238)
Exercise of stock options -- 38
---------- --------
Net cash provided by financing activities 14,013 14,715
---------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (566) (447)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,950 1,919
---------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,384 $ 1,472
---------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 2,024 $ 1,408
---------- --------
Income taxes $ 7 $ 90
---------- --------
Non-cash investing and financing activities:
Assets acquired under capital leases or
by incurring debt $ 339 $ --
---------- --------
Issuance of warrants $ 2,708 $ --
---------- --------
</TABLE>
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated unaudited
financial statements include all necessary adjustments (consisting of normal
recurring accruals) and present fairly the financial position of MEDE AMERICA
Corporation (the "Company" or the "Registrant") and subsidiaries as of December
31, 1998 and the results of its operations and cash flows for the three and six
months ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles for the interim financial information applied on a
consistent basis. The results of operations for the three and six months ended
December 31, 1998 are not necessarily indicative of the results to be expected
for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in MEDE AMERICA Corporation's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission.
2. TRANSACTION PROCESSING AGREEMENT
On July 17, 1998, the Company entered into a transaction processing
agreement (the "Processing Agreement") with Medic Computer Systems, Inc.
("Medic"), a subsidiary of Misys plc that develops and licenses software for
healthcare providers, principally physicians, MSOs and PPMs. Under the
Processing Agreement, the Company will undertake certain software development
obligations, and on July 1, 1999 it will become the exclusive processor
(subject to certain exceptions) of medical reimbursement claims for Medic's
subscribers submitted to payors with whom the Company has or establishes
connectivity. Under the Processing Agreement, the Company will be entitled to
revenues to be paid by payors (in respect of which a commission is payable to
Medic) as well as fees to be paid by Medic. The Processing Agreement sets forth
detailed performance criteria and development and implementation timetables.
Inability to meet these criteria may result in financial penalties or give Medic
a right to terminate this agreement. The Processing Agreement is for a fixed
term of five years, with annual renewals thereafter (unless either party elects
to terminate).
Contemporaneously, to ensure a close working relationship between the
parties, on July 17, 1998 the Company granted to Medic a warrant (the "Medic
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
Warrant") to acquire 1,250,000 shares of the Company's common stock, at a per
share exercise price equal to the price of the common stock to the public in the
IPO or, in the event that the IPO was not completed by March 31, 1999 at an
exercise price equal to $8 per share. The Medic Warrant vests over a two year
period and may be exercised up to five years after issuance. The Medic Warrant
was valued at $2,537,000 using the Black-Scholes Option Pricing Model and is
recorded in other assets. The Medic Warrant is being amortized over the life of
the Processing Agreement, five years. The Medic Warrant contains customary
weighted average antidilution provisions. The Company and certain principal
stockholders have agreed that following the completion of the IPO and until the
earlier of the termination of the Processing Agreement or the disposition by
Medic and its affiliates of at least 25% of the shares of common stock issuable
under the Medic Warrant, Medic shall have the right to designate one director to
the Company's Board of Directors. Medic has not yet named a designee.
3. ACQUISITION
In October 1998, the Company acquired all the outstanding shares of
capital stock of Healthcare Interchange, Inc. ("HII"), a St. Louis,
Missouri-based provider of EDI transaction processing services to hospitals and
physician groups in Missouri, Kansas, and Illinois. Prior to the acquisition of
HII, two unrelated healthcare services divisions, Intercare and Telemedical,
were divested from HII in separate transactions. HII was purchased for a total
cash payment of approximately $11.7 million, including transaction expenses, and
was financed with borrowings under the Credit Facility. The acquisition was
accounted for under the purchase method of accounting.
The acquisition was financed with borrowings under the Credit Facility
which was amended in October 1998 to increase the total availability to $36.0
million. In connection with such amendment, certain stockholders of the Company
were issued warrants to purchase 84,050 common shares in consideration for
granting guarantees of all borrowings under the Credit Facility.
The following unaudited pro forma information for the six months ended
December 31, 1997 includes the operations of the Company, inclusive of the
operations of both The Stockton Group, Inc. (which was acquired in November
1997) and HII as if the acquisitions had occurred as of July 1, 1997. The pro
forma information for the six months ended December 31, 1998 includes the
operations of the Company, inclusive of the operations of HII as if the
acquisition had occurred at July 1, 1997. This pro forma information gives
effect to the amortization expense associated with goodwill and other intangible
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
assets acquired, adjustments related to the fair market value of the assets and
liabilities acquired, interest expense related to financing the acquisitions and
related income tax effects.
Six Months Ended
December 31,
1998 1997
---- ----
(In thousands)
Revenues $ 26,756 $ 23,172
--------- ---------
Loss from operations (437) (974)
--------- ---------
Net loss (3,039) (3,214)
--------- ---------
Net loss applicable to common stock (4,239) (4,414)
--------- ---------
Basic and diluted net loss per share (0.75) (0.78)
--------- ---------
4. INITIAL PUBLIC OFFERING
On February 5, 1999, the Company consummated an initial public
offering ("IPO") of 5,307,710 shares of common stock at a price of $13.00 per
share (including 692,310 shares that were subject to the underwriters'
overallotment option, which was exercised in full). The net proceeds to the
Company were approximately $62.1 million (after deducting the underwriting
discount and offering expenses payable by the Company). The net proceeds to the
Company were used to (i) prepay approximately $25.2 million of outstanding
principal and accrued interest on its outstanding 10% Senior Subordinated Note
due February 1, 2002 and (ii) repay approximately $28.5 million of outstanding
indebtedness and accrued interest under its revolving credit facility (the
"Credit Facility"). The remaining $8.4 million of net proceeds was used to pay a
portion of the accrued dividends on the Company's preferred stock, and the
remainder of such accrued dividends ($301,000) was converted into 23,124 shares
of Common Stock. In addition, in connection with the IPO, all outstanding shares
of preferred stock were converted into 1,845,815 shares of common stock at the
IPO price of $13.00 per share. In connection with the prepayment of the Senior
Subordinated Note, the Company will record an extraordinary charge of
approximately $1.4 million relating to the write-off of the remaining discount
on the Senior Subordinated Note.
Pro forma stockholders' deficit as of December 31, 1998 reflects the
conversion of all outstanding shares of preferred stock plus approximately
$301,000 of accrued dividends into common stock at the IPO price of $13.00 per
share, and the payment of the remaining $8.1 million of accrued dividends in
cash.
<PAGE>
MEDE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
5. NEW CREDIT FACILITY
On January 26, 1999, the Company entered into a Credit Agreement with
NationsBank, N.A., as Administrative Agent, and NationsBanc Montgomery
Securities LLC, as Syndication Agent (the "New Credit Facility"). The New Credit
Facility provides for a $25 million revolving credit facility that matures on
January 26, 2002. The New Credit Facility is not guaranteed by any third party,
but is secured by substantially all of the Company's assets, including the stock
of the Company's subsidiaries. The closing of the New Credit Facility occurred
simultaneously with the consummation of the IPO. The New Credit Facility
contains various covenants and conditions, including those relating to Year 2000
compliance, acquisitions, changes in control and restrictions on the payments of
dividends on the common stock.
6. RECENT ACCOUNTING PRONOUNCEMENT
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in
fiscal 1999. For the six months ended December 31, 1998, there were no items of
comprehensive income as defined in the pronouncement.
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, certain
items from the consolidated statements of operations of MedE AMERICA Corporation
expressed as a percentage of total revenues.
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues 100% 100% 100% 100%
Operating Expenses
Operations 38 40 39 43
Sales, marketing and
client services 25 25 25 25
Research and
development 9 11 9 10
General and
administrative 10 11 10 11
Depreciation and
amortization 17 17 16 18
THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE AND SIX MONTHS
ENDED DECEMBER 31, 1997
Revenues
Revenues in the three and six months ended December 31, 1998 were
$13.0 million and $25.0 million, respectively, compared to $9.8 million and 19.1
million, respectively, in the corresponding periods of fiscal 1998, representing
increases of 32% and 31%, respectively. The increase in both periods was
primarily attributable to incremental revenue from the acquisition of The
Stockton Group ("Stockton") in November 1997 and Healthcare Interchange Inc.
("HII") in October 1998, and to the growth of the existing business, partially
offset by the loss of revenues from operations that were divested. The Company
processed 76.3 million and 142.2 million transactions in the three and six
months ended December 31, 1998, respectively, compared to 54.7 million and 104.5
million transactions processed in the corresponding periods of fiscal 1998,
representing increases of 40% and 36%, respectively. The increases resulted from
the incremental transactions from the acquisition of Stockton and HII, the
addition of new clients and the increased transaction volume from existing
clients. The average price per transaction received by the Company for the three
and six months ended December 31, 1998 declined by 6% and 4%, respectively,
compared with the corresponding periods of the prior fiscal year, as a result
<PAGE>
of a relatively higher proportion of lower-priced Pharmacy division switching
transactions compared to the other divisions' higher- priced transactions, and a
greater portion of transactions that were processed under contracts with
volume-based pricing terms.
Operating Expenses
Operations expense was $4.9 million and $9.7 million in the three and
six months ended December 31, 1998, respectively, compared to $3.9 and $8.2
million in the corresponding periods of fiscal 1998, representing increases of
24% and 18%, respectively. As a percentage of revenues, operations expense
decreased from 40% and 43% in the three and six months ended December 31, 1997,
respectively, to 38% and 39% in the corresponding periods of fiscal 1999. The
increase in operations expense was primarily due to the acquisition of Stockton
in November 1997 and HII in October 1998, and to the higher volume of
transactions processed. The decrease in operations expense as a percentage of
revenues was primarily due to operations leverage from systems consolidation for
the recent acquisitions, the effects of ongoing cost reduction programs, and to
a lesser extent, the impact of the divested operations, which results were
included in the fiscal 1998 periods but not the fiscal 1999 periods.
Sales, marketing and client services expense was $3.2 million and $6.1
million in the three and six months ended December 31, 1998, respectively,
compared to $2.4 million and $4.8 million in the corresponding periods of fiscal
1998, representing increases of 32% and 27%, respectively. As a percentage of
revenues, sales, marketing and client services expense was 25% in each such
period. The increase in sales, marketing and client services expense was
primarily due to the inclusion of the Stockton and HII acquisitions.
Research and development expense was $1.2 million and $2.3 million in
the three and six months ended December 31, 1998, respectively, compared to $1.1
million and $1.9 million in the corresponding periods of fiscal 1998,
representing increases of 10% and 22%, respectively. As a percentage of
revenues, research and development expense decreased from 11% and 10% for the
three and six months ended December 31, 1997, respectively, to 9% in the
corresponding periods of fiscal 1999. The Company capitalized $227,000 and
$466,000 of software development costs in the three and six months ended
December 31, 1998, respectively, compared to $101,000 and $194,000 in the
corresponding periods of fiscal 1998. The increases in research and development
costs in the fiscal 1999 periods were primarily due to development of new and
enhanced EDI transaction products and services, development associated with
major customer contracts currently expected to roll out in calendar 1999 and the
establishment of additional direct payor connections. In addition, Year 2000
compliance expenditures amounted to $380,000 and $512,000 in the three and six
<PAGE>
months ended December 31, 1998, respectively. There were no such expenditures in
the corresponding periods of fiscal 1998.
General and administrative expense was $1.3 million and $2.6 million
in the three and six months ended December 31, 1998, respectively, compared to
$1.1 million and $2.2 million in the corresponding periods of fiscal 1998,
representing an increase of 19% for both periods. As a percentage of revenues,
general and administrative expense decreased from 11% for the three and six
months ended December 31, 1997 to 10% in the corresponding periods of fiscal
1999.
Depreciation and amortization expense was $2.2 million and $4.1
million in the three and six months ended December 31, 1998, respectively,
compared to $1.7 million and $3.4 million in the corresponding periods of fiscal
1998, representing increases of 29% and 20%, respectively. The increase in
depreciation and amortization expense was primarily attributable to the Stockton
and HII acquisitions. As a percentage of revenues, depreciation and amortization
expense remained constant at 17% in the three month comparison periods and
decreased from 18% in the six months ended December 31, 1997 to 16% in the
corresponding period of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used capital from external sources to
fund its internal growth and operations and to make acquisitions. Prior to the
IPO, such capital requirements have been provided by (i) the Company's four
principal stockholders, through periodic purchases of the Company's debt and
equity securities and (ii) its Credit Facility. Since June 30, 1995 an
investment fund affiliated with Welsh, Carson, Anderson and Stowe ("WCAS") has
purchased a senior subordinated note in the principal amount of $25.0 million
and 370,993 shares of Common Stock from the Company for an aggregate $25.0
million, which was used in connection with the acquisition of Time-Share
Computer Systems, Inc., to repay borrowings under the Credit Facility and for
general working capital purposes. In October 1998, the total availability under
the Credit Facility was increased to $36.0 million, and the Company drew down an
additional $13.2 million, of which $11.7 million was used to finance the HII
acquisition. As of December 31, 1998, the Company had outstanding borrowings of
$31.1 million under the Credit Facility. Such borrowings bore interest at a
weighted average rate of 6.41% per annum as of December 31, 1998. All
indebtedness under the Credit Facility was guaranteed by the Company's four
principal stockholders.
Subsequent to the December 31, 1998 reporting period, on January 26,
1999, the Company entered into a Credit Agreement (the "New Credit Facility")
with NationsBank, N.A., as Administrative Agent, and NationsBanc Montgomery
Securities LLC, as Syndication Agent. The New Credit Facility provides for a $25
<PAGE>
million revolving credit facility that matures on February 5, 2002. The New
Credit Facility is not guaranteed by any third party, but is secured by
substantially all of the Company's assets including the stock of the Company's
subsidiaries. The New Credit Facility contains various covenants and conditions,
including those relating to Year 2000 compliance, changes in control and
management and restrictions on the payment of dividends on the Common Stock.
The closing of the New Credit Facility occurred simultaneously with the
consummation of the IPO.
On February 5, 1999, the Company consummated an IPO of 5,307,710
shares of common stock at a price of $13.00 per share (including 692,310 shares
that were subject to the underwriters' overallotment option, which was exercised
in full). The net proceeds to the Company was approximately $62.1 million (after
deducting the underwriting discount and offering expenses payable by the
Company). The net proceeds to the Company were used to (i) prepay approximately
$25.2 million of outstanding principal and accrued interest on its outstanding
10% Senior Subordinated Note due February 1, 2002 and (ii) repay approximately
$28.5 million of outstanding indebtedness and accrued interest under its Credit
Facility. The Company used the remaining $8.4 million of net proceeds to pay a
portion of outstanding accrued dividends on its preferred stock, and
approximately $301,000 of accrued dividends were converted into 23,124 shares of
Common Stock. In addition, in connection with the IPO all outstanding shares of
preferred stock were converted into 1,845,815 shares of common stock at the IPO
price of $13.00 per share. In connection with the prepayment of the Senior
Subordinated Note, the Company will record and extraordinary charge of
approximately $1.4 million relating to the write-off of the remaining discount
on the Senior Subordinated Note.
As of December 31, 1998, the Company had cash and cash equivalents of
$2.4 million and net working capital of $3.9 million. Net cash used in
operations was $1.8 million for the six months ended December 31, 1998. The $1.8
million net cash used in operations in the six months ended December 31, 1998
resulted primarily from increased investments in formularly receivables of $1.5
million (as a result of the Stockton acquisition and growth of the pharmacy
business), and other assets of $846,000, as well as a decrease in accounts
payable and accrued expenses of $1.5 million due to the timing of payments,
partially offset by the $2.4 million of income from operations (after adding
back non-cash charges).
Cash used for investment purposes was $12.8 million in the six months
ended December 31, 1998. Cash used for investment purposes during the six months
ended December 31, 1998 was primarily used to acquire HII for $11.4 million (net
of cash acquired), and to fund capital expenditures of $798,000 and additions to
intangible assets of $584,000. The Company expects to pay $1.8 million of
additional contingent consideration relating to the Stockton acquisition by the
<PAGE>
end of the March 31,1999 quarter and at least $2.0 million per annum for the
foresee able future for capital investment to support growth in transaction
processing.
Cash provided by financing activities was $14.0 million for the six
months ended December 31, 1998. Cash provided by financing activities during
the six months ended December 31, 1998 was primarily provided from borrowings
under the Credit Facility which was partially offset by principal repayments of
debt and capital lease obligations.
The Company expects to use the New Credit Facility to finance the
Company's future acquisitions and for general working capital needs, and subject
to satisfaction of the covenants set forth therein, may finance acquisitions
through the issuance of additional equity and debt securities. The Company
believes that existing cash balances and cash generated by operations in the
near term, and the borrowings available under the New Credit Facility, will be
sufficient to finance the Company's operations for at least 18 months. However,
future acquisitions may require funding beyond the Company's cash resources and
currently anticipated capital or operating requirements could change, with the
result that the Company may be required to raise additional funds through the
public or private sale of additional securities.
YEAR 2000 COMPLIANCE
ASSESSMENT
Since 1996, the Company has specified that all developed software be
Year 2000 compliant. In January 1998 the Company performed a product assessment
on all legacy products identifying all those that were not Year 2000 compliant,
and began the process of renovating its existing non-compliant products (usually
in connection with improving product functionality). In August 1998, all Year
2000 remediation programs were centralized under the direction of a Year 2000
Project Manager. Also in 1998 the Company began tracking Year 2000 expenditures
as a separate category of expenditures. Total Year 2000 expenditures prior to
August 1, 1998 amounted to approximately $225,000; expenditures from August 1,
1998 through December 31, 1998 totaled approximately $287,000.
The Company has completed its assessment of whether it will have to
modify or replace portions of its software and its products, services and
internal systems so that they will function properly with respect to dates in
the year 2000 and thereafter. In addition to its general Year 2000 compliance
review, the Company has specifically identified several areas which are not Year
2000 compliant as of November 30, 1998: (i) the Company's PBM system in Ohio,
(ii) the UNIX operating platform software used in connection with the Company's
pharmacy practice management system, and (iii) the UNIX operating platform
<PAGE>
software utilized in its pharmacy transaction switching. With the exception of
the Ohio PBM system, the Company believes its internally developed software and
systems are Year 2000 compliant.
REMEDIATION AND IMPLEMENTATION
The Company has developed a remediation program to correct the Year
2000 problems it has identified. PBM clients who utilize the Company's PBM
system in Ohio are being migrated to the PBM system acquired by the Company from
Stockton, which the Company considers to be Year 2000 compliant. A testing and
migration timetable for all such clients has been developed, with migration
activities scheduled for completion in mid-1999. For retail pharmacy practice
management clients, the Company's remediation program consists of providing a
Year 2000 compliant version of the UNIX software to replace the older
non-compliant version (which is no longer being supported by the vendor), as
well as software upgrades, with discounted hardware packages to enable such
clients to utilize the Year 2000 compliant system. The Company is currently
contacting retail pharmacy customers and expects that the implementation of such
program will extend throughout calendar 1999. A version of the UNIX operating
platform software used in pharmacy transaction switching, which the manufacturer
represents to be Year 2000 compliant, was released in December 1998. Testing of
that operating platform software on the Company's hardware, with the Company's
pharmacy transaction switching software, which had been scheduled for January
and February of 1999, is now scheduled for March 1999.
During its assessment phase, the Company identified potentially Year
2000 non-compliant "non-information technology" systems (such as embedded
microcontrollers). Accordingly, the Company is replacing its older (and
potentially non-compliant) computer and telecommunications hardware with
hardware that is Year 2000 compliant. These expenditures are being made in the
general course of the Company's renovation and modernization program, and as
such are accounted for as ordinary capital expenditures instead of Year 2000
expenses.
In October 1998 the Company acquired HII. HII's EDI products and
services fall into three categories: physician claims processing (small- and
large-group), hospital claims processing and claims data transmission
(extraction and transmission of claim data to a third party data analyst). Based
on its review at the time of the acquisition, the Company determined that none
of HII's products is Year 2000 compliant. The Company intends to modify HII's
common carrier and Internet-based claims processing system for small physician
groups to make it Year 2000 compliant. The Company also intends to modify HII's
payor data transmission products to make such products Year 2000 compliant.
These modifications are scheduled to be completed by spring 1999. The Company
<PAGE>
intends to migrate HII's claims processing for hospitals and large physician
groups to the Company's MedE Claim product; this migration is scheduled to start
in spring 1999 and be completed by mid-1999. The Company can, if necessary,
process claims for hospitals and large physician groups through its common
carrier and Internet-based claims processing system.
Some or all of the Company's revenues from each of the three areas in
which Year 2000 problems have been identified, as well as those of HII's
clients, are subject to the risk of Year 2000 noncompliance. The total revenue
from the Company's PBM services clients was $6,491,000 in fiscal 1998. The total
revenue from Pharmacy retail system sales was $511,000 in fiscal 1998. The total
revenue derived from Pharmacy switching was $8,183,000 in fiscal 1998. The total
claims and related revenue derived from HII was $4,950,000 for the twelve months
ended June 30, 1998.
Excluding anticipated expenditures associated with ordinary product
development, the Company has budgeted approximately $1,210,000 through December
1999 for Year 2000 compliance costs, of which approximately $512,000 had been
expended through December 31, 1998. The Company believes that this amount will
be sufficient to execute its plan and cover contingency plan costs. The Company
believes that it has sufficient resources to implement its plan. However, there
can be no assurance that expenditures required to achieve compliance with Year
2000 requirements will not exceed the budgeted amounts.
The Company's client base consists of over 65,000 healthcare
providers and over 1,000 payors. While the Company has not attempted to assess
the readiness of each of these entities, the Company has begun to work with
major customers and suppliers to insure that Year 2000 compliance issues will
not interrupt the normal activities supported by these relationships.
Implementation of Year 2000 compliant software is product- and
platform-specific. If the software resides on the host system, all clients will
automatically access the new software. Similarly, products that can receive
updates remotely will be updated via remote distribution. The existing telephone
number for HII's bulletin board program can be automatically redirected to
connect to a Company product that is Year 2000 compliant. A small minority of
the Company's clients (mostly retail pharmacy clients) will require on-site
installation (in most cases, this installation will also provide the clients
with the capability to receive future enhancements that will not otherwise be
avail able).
The Company's Medicare/Medicaid Payors are subject to a Year 2000
compliance program undertaken by the Health Care Financing Administration. Under
the HCFA plan, all mission critical systems have been identified, and an
Independent Verification and Validation consultant has been retained to perform
inspections and testing of all public payors. This plan includes both random and
announced system and site testing.
<PAGE>
CONTINGENCIES
The Company believes that the most likely worst case Year 2000
scenario would include the following: (i) one or more parts of the Company's
software and operating systems would operate incorrectly; (ii) one or more of
the Company's payors would be unable to receive transactions; and (iii) one or
more of the Company's providers/clients would not have completed internal Year
2000 conversions. It is possible that failures of the type described in clause
(i) of the preceding sentence could cause clients of the Company to either
terminate their contracts with the Company and/or sue the Company for damages.
Also, if the Company fails to achieve Year 2000 compliance by September 30,
1999, such failure could constitute a default under the New Credit Facility,
which could in turn have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has completed the
assessment of its critical hardware and software and believes that the
assessment has revealed all significant Year 2000 problems, that such problems
will be capable of remediation, and that the Company's software and hardware
will perform substantially as planned when Year 2000 processing begins. Although
there can be no assurance that the Company will not experience Year 2000
problems, based on its assessment and remediation program to date, the Company
believes that Year 2000 compliance issues will not have a material adverse
effect on its business, financial condition or prospects and will not,
therefore, result in a default under the Year 2000 compliance covenant in the
New Credit Facility. However, due to the uncertainties that are inherent in
addressing the Year 2000 problem, there can be no assurance that the Company
will not experience unforeseen Year 2000 problems, which problems could have a
material adverse effect on the Company's business, financial condition and
results of operations.
As contingency planning, the Company has three available options
should certain functions not operate properly on January 1, 2000. First, the
Company has developed its internal systems in such a manner as to allow such
systems to accept non-Year 2000 compliant data, and convert such data based on
defaults and algorithms developed in conjunction with the providers to Year 2000
compatible formats. This methodology is applicable for claims, eligibility and
enrollment transactions. Second, for payors, in the event a payor is unable to
accept EDI claims, the Company currently has the capability, internally and, if
necessary with support from an outside vendor, to print paper claims forms from
supplied provider data and to send those claims in paper form to non-Year 2000
compliant payors. Third, for medical claims, a bulletin board system acquired in
the HII transaction could be utilized by clients, with minimal programming set
up, as a means of transmitting claims to the Company via common carriers and the
Internet.
<PAGE>
IMPACT OF INFLATION
Inflation has not had a material impact on the Company's historical
operations or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board,
which are not required to be adopted at this date, include SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", and SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities". These
pronouncements are not expected to have a material impact on the Company's
financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement is not required
to be adopted at this date. The Company is currently evaluating the impact of
this statement on its financial statements.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this periodic
report on Form 10-Q and in other SEC filings by the Company contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 which can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negatives thereof of other variations thereon
or comparable terminology, or by discussions of strategy. Such forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to vary materially from those projected in such forward-looking
statements. These risks and uncertainties are discussed in more detail in the
Company's Registration Statement on Form S-1 which was filed with the Securities
and Exchange Commission in connection with the IPO. No assurance can be given
that future results covered by the forward-looking statements will be achieved.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On January 27, 1999, the Supreme Court of the State of New York,
County of Nassau granted the Company's motion to dismiss in the matter of Oakley
v. Latpon R&D et al., a civil proceeding. The action is described in the
Company's Registration Statement on Form S-1 (SEC File No. 333-55799).
Item 2. Changes in Securities and Use of Proceeds
(a) As part of the consummation of its IPO on February 5, 1999, the
Company completed a recapitalization which included (i) a 4.5823 for 1 reverse
stock split of all outstanding Common Stock that had been declared by the
Company's Board of Directors on July 23, 1998, (ii) the issuance of 63,398
shares of Common Stock upon the exercise of certain outstanding Common Stock
purchase warrants and (iii) the conversion of the aggregate liquidation value of
the Series A Preferred Stock, $.01 par value (the "Preferred Stock"), into an
aggregate 1,845,815 shares of Common Stock at price of $13.00 per share (the per
share price to the public in the IPO). In addition, in connection with the IPO,
the portion of the accrued and unpaid dividends on the Preferred Stock that was
not paid in cash, amounting to $301,259, was converted into an aggregate 23,124
shares of Common Stock (at a per share conversion price equal to the price to
the public in the IPO). The remainder of the accrued and unpaid dividends on the
Preferred Stock (approximately $8.4 million) was paid in cash to the holders of
the Preferred Stock out of the proceeds of the exercise of the underwriters'
overallotment option in the IPO.
(d) On February 5, 1999, the Company completed an IPO of 5,307,710
shares of Common Stock at a price per share of $13.00 (including 692,310 shares
that were subject to the underwriters' overallotment option, which was exercised
in full). The aggregate offering price was $69,000,230. The amount of all
applicable issuance costs and underwriting discounts incurred by the Company was
approximately $6,900,000. After deducting issuance costs and expenses, the total
net proceeds to the Company was approximately $62,100,000.
Of the net proceeds of the IPO, approximately $25.2 million were used
by the Company to prepay the outstanding balance (including any accrued interest
thereon) of the Senior Subordinated Note held by an investment fund affiliated
with WCAS. Investment funds affiliated with WCAS are major stockholders of the
Company and two of the Company's directors, Anthony de Nicola and Thomas
McInerney, are general partners of WCAS.
<PAGE>
In addition, together with approximately $3.0 million of borrowings
under the New Credit Facility with Nationsbank, N.A., $28.5 million of proceeds
from the IPO were used to retire all indebtedness the Company's then existing
Credit Facility with the Bank of America, which had been guaranteed by the
Company's principal stockholders. The New Credit Facility is not guaranteed by
any third party.
The effective date of the Company's registration statement on Form S-1
was February 1, 1999, and the Commission file number assigned to the
registration statement was 333-55977. The offering was completed upon the sale
of all securities registered. Salomon Smith Barney, Bear, Stearns & Co., Inc.
and William Blair & Company acted as managing underwriters for the IPO.
Item 4. Submission of Matters to a Vote of Security Holders
On January 20, 1999, the holders of more than a majority of each class
of the Company's capital stock then outstanding approved, by written consent,
the amendment to the Company's Amended and Restated Certificate of Incorporation
which postponed the payment of the accrued and unpaid dividends on the Preferred
Stock, and the conversion of any remaining accrued and unpaid dividends on the
Preferred Stock into Common Stock, until the date of exercise or expiration of
the Underwriters' overallotment option. See Item 2.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibits are filed as a part of this report:
Exhibit No. Description
10.1 Underwriting Agreement dated as of February 1, 1999.
10.2 Letter Amendment and Waiver No.1 dated as of February 5,
1999 from MEDE AMERICA Corporation to the banks and
other financial institutions parties to the New Credit
Facility, NationsBank, N.A., as Administrative and
Collateral Agent
<PAGE>
thereunder, and NationsBanc Montgomery Securities LLC,
as Syndication Agent thereunder.
10.3 Letter Amendment and Waiver No.2 dated as of February 25,
1999 from MEDE AMERICA Corporation to the banks and other
financial institutions parties to the New Credit
Facility, NationsBank, N.A., as Administrative and
Collateral Agent thereunder, and NationsBanc Montgomery
Securities LLC, as Syndication Agent thereunder.
27.1 Financial Data Schedule relating to the three months
ended September 30, 1998.
27.2 Financial Data Schedule relating to the three months
ended December 31, 1998.
(b) Reports:
No reports on Form 8-K have been filed by the Company during the three
(3) months ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDE AMERICA CORPORATION
(Registrant)
By: /s/ Thomas P. Staudt
---------------------------
Thomas P. Staudt
President and
Chief Executive Officer, on
behalf of the Registrant
By: /s/ Richard P. Bankosky
---------------------------
Richard P. Bankosky
Chief Financial Officer
March 9, 1999
Exhibit 10.1
MedE America Corporation
4,615,400 Shares
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
February 1, 1999
Salomon Smith Barney Inc.
Bear, Stearns & Co. Inc.
William Blair & Company, L.L.C.,
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
MedE America Corporation, a Delaware corporation (the "Company"),
proposes to sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, 4,615,400 shares of common stock, $.01 par value ("Common
Stock") of the Company (said shares to be issued and sold by the Company being
hereinafter called the "Underwritten Securities"). The Company also proposes to
grant to the Underwriters an option to purchase up to 692,310 additional shares
of Common Stock to cover over-allotments (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities"). To the extent there are no additional Underwriters listed on
Schedule I other than you, the term Representatives as used herein shall mean
you, as Underwriters, and the terms Representatives and Underwriters shall mean
either the singular or plural as the context requires. Certain terms used herein
are defined in Section 17 hereof.
As part of the offering contemplated by this Agreement, Salomon Smith
Barney has agreed to reserve out of the Shares set forth opposite its name on
the Schedule I to this Agreement, up to 5% of the Underwritten Securities, for
sale to the Company's employees, officers, and directors and other parties
associated with the Company (collectively, "Participants"), as set forth in the
Prospectus under the heading "Underwriting" (the "Directed Share Program"). The
Shares to be sold by Salomon Smith Barney pursuant to the Directed Share Program
(the "Directed Shares") will be sold by Salomon Smith Barney pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by any Participants by the end of the business day on which this
Agreement is executed will be offered to the public by Salomon Smith Barney as
set forth in the Prospectus.
<PAGE>
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, each Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-55977) on Form S-1, including a
related preliminary prospectus, for registration under the Act of the
offering and sale of the Securities. The Company has filed one or more
amendments thereto, including a related preliminary prospectus, each of
which has previously been furnished to you. The Company will next file with
the Commission either (1) prior to the Effective Date of such registration
statement, a further amendment to such registration statement (including
the form of final prospectus) or (2) after the Effective Date of such
registration statement, a final prospectus in accordance with Rules 430A
and 424(b). In the case of clause (2), the Company has included in such
registration statement, as amended at the Effective Date, all information
(other than Rule 430A Information) required by the Act and the rules
thereunder to be included in such registration statement and the
Prospectus. As filed, such amendment and form of final prospectus, or such
final prospectus, shall contain all Rule 430A Information, together with
all other such required information, and, except to the extent the
Representatives shall agree in writing to a modification (which agreement
shall not be unreasonably withheld), shall be in all substantive respects
in the form furnished to you prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to the
Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and
when the Prospectus is first filed (if required) in accordance with Rule
424(b) and on the Closing Date (as defined herein) and on any date on which
Option Securities are purchased, if such date is not the Closing Date (a
"settlement date"), the Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act
and the rules thereunder; on the Effective Date and at the Execution Time,
the Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
<PAGE>
therein or necessary in order to make the statements therein not
misleading, except for Rule 430A pricing information; and, on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), will not, and
on the date of any filing pursuant to Rule 424(b) and on the Closing Date
and any settlement date, the Prospectus (together with any supplement
thereto) will not, include any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to the information contained in or omitted from the
Registration Statement, or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished herein or in
writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto).
(c) Each of the Company and its Subsidiaries (as defined herein) has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is chartered or
organized with full corporate power and authority to own or lease, as the
case may be, and to operate its properties and conduct its business as
described in the Prospectus, and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification, except where the failure as
to due qualification to do business would not have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and the Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto) (a "Material Adverse Effect");
(d) All the outstanding shares of capital stock of the Subsidiaries
have been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise set forth in the Prospectus, all
outstanding shares of capital stock of the Subsidiaries are owned by the
Company directly free and clear of any perfected security interest or any
other security interests, claims, liens or encumbrances;
(e) The Company's authorized equity capitalization is as set forth in
the Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock have been duly and validly authorized
and issued and are fully paid and nonassessable; the Securities have been
duly and validly authorized, and, when issued and delivered to and paid for
by the Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the Securities are duly listed, and admitted and authorized
for trading, subject to official notice of issuance and evidence of
satisfactory distribution, on the Nasdaq National Market; the certificates
for the Securities are in valid and sufficient form; the holders of
outstanding shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities except for such
rights of WCAS Capital Partners II, L.P. as have been effectively waived;
and, except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of
capital stock of or ownership interests in the Company are outstanding;
<PAGE>
(f) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or filed as
required; and the statements in the Prospectus under the headings "Risk
Factors -- Proposed Healthcare Data Confidentiality Legislation," "Business
-- Government Regulation" and "Business -- Legal Proceedings" fairly
summarize the matters therein described.
(g) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by federal and state securities laws
or principles of public policy and subject to the qualification that the
enforceability of the Company's obligations hereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and by
general principles of equity.
(h) The Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been obtained under
the Act and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated herein and in the
Prospectus.
(j) Neither the issue and sale of the Securities nor the consummation
of any other of the transactions herein contemplated nor the fulfillment of
the terms hereof will conflict with, result in a breach or violation of or
the imposition of any lien, charge or encumbrance upon any property or
assets of the Company or the Subsidiaries pursuant to, (i) the charter or
by-laws of the Company or the Subsidiaries, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which the Company or the Subsidiaries are a party or bound or to which
its or their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or the
Subsidiaries, of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over
the Company or the Subsidiaries or any of its or their properties, except
as to clauses (ii) and (iii) where such breach, violation, lien, charge or
encumbrance would not have a Material Adverse Effect, individually or in
the aggregate.
<PAGE>
(k) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement except for
such rights of WCAS Capital Partners II, L.P. as have been effectively
waived.
(l) The consolidated historical financial statements and schedules of
the Company and its consolidated Subsidiaries included in the Prospectus
and the Registration Statement present fairly in all material respects the
financial condition, results of operations and cash flows of the Company as
of the dates and for the periods indicated, comply as to form with the
applicable accounting requirements of the Act and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein). The selected financial data set forth under the caption "Selected
Consolidated Financial Data" in the Prospectus and Registration Statement
fairly present, on the basis stated in the Prospectus and the Registration
Statement, the information included therein. The pro forma financial
statements included in the Prospectus and the Registration Statement
include assumptions that provide a reasonable basis for presenting the
significant effects directly attributable to the transactions and events
described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma adjustments reflect the
proper application of those adjustments to the historical financial
statement amounts in the pro forma financial statements included in the
Prospectus and the Registration Statement. The pro forma financial
statements included in the Prospectus and the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of Regulation S-X under the Act and the pro forma adjustments
have been properly applied to the historical amounts in the compilation of
those statements.
(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or the Subsidiaries or its or their property is pending or, to the
best knowledge of the Company, threatened that (i) could reasonably be
expected to have a material adverse effect on the performance of this
Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to have a Material Adverse
Effect.
(n) Each of the Company and the Subsidiaries owns or leases all such
properties as are necessary to the conduct of its operations as presently
conducted.
(o) Neither the Company nor the Subsidiaries is in violation or
default of (i) any provision of its charter or bylaws, (ii) the terms of
any indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is
<PAGE>
subject, or (iii) any statute, law, rule, regulation, judgment, order or
decree of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or
the Subsidiaries or any of its or their properties, as applicable, except
as to clauses (ii) and (iii) where such violation or default would not have
a Material Adverse Effect, individually or in the aggregate.
(p) Deloitte & Touche LLP and KPMG Peat Marwick LLP, each of whom have
certified certain financial statements of the Company and its consolidated
Subsidiaries and delivered their reports with respect to the audited
consolidated financial statements and schedules included in the Prospectus,
each are independent public accountants with respect to the Company within
the meaning of the Act and the applicable published rules and regulations
thereunder.
(q) There are no transfer taxes or other similar fees or charges under
Federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance by the Company or sale by the Company of the
Securities.
(r) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a
Material Adverse Effect) and has paid all taxes required to be paid by it
and any other assessment, fine or penalty levied against it, to the extent
that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good faith
or as would not have a Material Adverse Effect.
(s) No labor problem or dispute with the employees of the Company or
the Subsidiaries exists or is threatened or imminent, and the Company is
not aware of any existing or imminent labor disturbance by the employees of
any of its or the Subsidiaries' principal suppliers, contractors or
customers, that could have a Material Adverse Effect.
(t) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; all policies of insurance and fidelity or surety bonds
insuring the Company or the Subsidiaries or their respective businesses,
assets, employees, officers and directors are in full force and effect; the
Company and the Subsidiaries are in compliance with the terms of such
policies and instruments in all material respects; and there are no claims
by the Company or the Subsidiaries under any such policy or instrument as
to which any insurance company is denying liability or defending under a
reservation of rights clause; neither the Company nor the Subsidiaries have
been refused any insurance coverage sought or applied for; and neither the
Company nor the Subsidiaries have any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
<PAGE>
(u) The Subsidiaries are not currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on the Subsidiaries' capital stock, from repaying to the
Company any loans or advances to the Subsidiaries from the Company or from
transferring any of the Subsidiaries' property or assets to the Company,
except as described in or contemplated by the Prospectus.
(v) The Company and the Subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor the Subsidiaries have
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(w) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(x) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(y) The Company and the Subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received and are in compliance with all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) have
not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants, except where such
non-compliance with Environmental Laws, failure to receive required
permits, licenses or other approvals, or liability would not, individually
or in the aggregate, have a Material Adverse Effect. Except as set forth in
the Prospectus, neither the Company nor the Subsidiaries have been named as
a "potentially responsible party" under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
<PAGE>
(z) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws on the business, operations and
properties of the Company and the Subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws, or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis of
such review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
Material Adverse Effect.
(aa) Each of the Company and the Subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section 302 of
the United States Employee Retirement Income Security Act of 1974 ("ERISA")
and the regulations and published interpretations thereunder with respect
to each "plan" (as defined in Section 3(3) of ERISA and such regulations
and published interpretations) in which employees of the Company and the
Subsidiaries are eligible to participate and each such plan is in
compliance in all material respects with the presently applicable
provisions of ERISA and such regulations and published interpretations. The
Company and the Subsidiaries have not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of
premiums in the ordinary course) or to any such plan under Title IV of
ERISA.
(ab) MedE America of Ohio, an Ohio corporation, Healthcare
Interchange, Inc. and Wellmark, Incorporated, a Delaware corporation, are
the only subsidiaries of the Company (the "Subsidiaries").
(ac) The Company and the Subsidiaries own, possess, license or have
other rights to use, on reasonable terms, all patents, patent applications,
trade and service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, technology, know-how and
other intellectual property (collectively, the "Intellectual Property")
material to the conduct of the Company's business as now conducted or as
proposed in the Prospectus to be conducted. Except as set forth in the
Prospectus under the caption "Business--Intellectual Property" or as would
not have a Material Adverse Effect, (a) other than rights granted by the
Company in its ordinary course of business, there are no rights of third
parties in Intellectual Property owned by the Company; (b) there is no
material infringement by third parties as to Intellectual Property owned by
the Company; (c) there is no pending or, to the Company's knowledge,
threatened action, suit, proceeding or claim against the Company by others
challenging the Company's rights in or to any such Intellectual Property,
and the Company is unaware of any facts which would form a reasonable basis
for any such claim against the Company; (d) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property, and
the Company is unaware of any facts which would form a reasonable basis for
any such claim; (e) there is no pending or, to the Company's knowledge,
<PAGE>
threatened action, suit, proceeding or claim against the Company by others
that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the
Company is unaware of any other fact which would form a reasonable basis
for any such claim; (f) there is no U.S. patent or published U.S. patent
application which contains claims that dominate or may dominate any
Intellectual Property described in the Prospectus as being owned by the
Company or that interferes with the issued or pending patents to any such
Intellectual Property; and (g) there is no prior art of which the Company
is aware that may render any U.S. patent held by the Company invalid or any
U.S. patent application held by the Company unpatentable which has not been
disclosed to the U.S. Patent and Trademark Office.
(ad) The statements contained in the Prospectus under the captions
"Risk Factors--Dependence on Intellectual Property; Risk of Infringement,"
"Business--Intellectual Property" and "Business -- Legal Proceedings,"
insofar as such statements summarize legal matters, agreements, documents,
or proceedings discussed therein, are accurate and fair summaries of such
legal matters, agreements, documents or proceedings.
(ae) Except as disclosed in the Registration Statement and the
Prospectus, the Company (i) does not have any material lending or other
relationship with any bank or lending affiliate of an Underwriter and (ii)
does not intend to use any of the proceeds from the sale of the Securities
hereunder to repay any outstanding debt owed to any affiliate of an
Underwriter.
(af) The statements contained in the Prospectus under the captions
"Risk Factors--Year 2000 Compliance," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Compliance" and
"Business--Year 2000 Compliance," are accurate and fair summaries of the
Company's efforts to address the risk that the computer hardware and
software used by them may be unable to recognize and properly execute
date-sensitive functions involving certain dates prior to and any dates
after December 31, 1999 (the "Year 2000 Problem") and the Company is in
compliance with the directives of the Commission's Release No. 33-7558
relating to Year 2000 compliance.
(ag) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters in
connection with the offering of the Securities shall be deemed a
representation and warranty by the Company, as to matters covered thereby,
to each Underwriter.
Furthermore, the Company represents and warrants to Salomon Smith
Barney that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
<PAGE>
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed shares are
offered outside the United States.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell
to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $12.09 per
share, the amount of the Underwritten Securities set forth opposite such
Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not
jointly, up to 692,310 Option Securities at the same purchase price per
share as the Underwriters shall pay for the Underwritten Securities. Said
option may be exercised only to cover over-allotments in the sale of the
Underwritten Securities by the Underwriters. Said option may be exercised
in whole or in part at any time (but not more than once) on or before the
30th day after the date of the Prospectus upon written or telegraphic
notice by the Representatives to the Company setting forth the number of
shares of the Option Securities as to which the several Underwriters are
exercising the option and the settlement date. The number of Option
Securities to be purchased by each Underwriter shall be the same percentage
of the total number of shares of the Option Securities to be purchased by
the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your
absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the Closing Date) shall be made at 10:00 AM, New York City time, on February 5,
1999, or at such time on such later date not more than three Business Days after
the foregoing date as the Representatives shall designate, which date and time
may be postponed by agreement between the Representatives and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Securities being herein called the "Closing Date"). Delivery of the Securities
shall be made to the Representatives for the respective accounts of the several
Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. Delivery of the Underwritten Securities and the Option Securities
shall be made through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
<PAGE>
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives on the
date specified by the Representatives (which date shall be reasonably agreed
upon by the Company and the Representative, but in any event within three
Business Days after exercise of said option) for the respective accounts of the
several Underwriters, against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. If settlement for the Option Securities occurs after the Closing
Date, the Company will deliver to the Representatives on the settlement date for
the Option Securities, and the obligation of the Underwriters to purchase the
Option Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b),
the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (1) when the
Registration Statement, if not effective at the Execution Time, shall have
become effective, (2) when the Prospectus, and any supplement thereto,
shall have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been filed
with the Commission, (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (4) of any request by the Commission or its
staff for any amendment of the Registration Statement, or any Rule 462(b)
Registration Statement, or for any supplement to the Prospectus or for any
additional information, (5) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (6) of
<PAGE>
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order or the suspension of any such qualification and, if
issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act or the rules thereunder, the Company promptly will (1) notify the
Representatives of any such event; (2) prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section
5, an amendment or supplement which will correct such statement or omission
or effect such compliance; and (3) supply any supplemented Prospectus to
you in such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Representatives an earnings statement or
statements of the Company and the Subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for
the Underwriters signed copies of the Registration Statement (including
exhibits thereto) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus and any supplement
thereto as the Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the
Representatives may designate and will maintain such qualifications in
effect so long as required for the distribution of the Securities; provided
that in no event shall the Company be obligated to qualify to do business
in any jurisdiction where it is not now so qualified or to take any action
that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Securities, in any jurisdiction
where it is not now so subject.
(f) The Company will not, without the prior written consent of Salomon
Smith Barney Inc., sell, offer to sell, solicit an offer to purchase,
contract to sell, grant any option to sell, pledge or otherwise dispose of,
or file (or participate in the filing of) a registration statement (other
than a Registration Statement on Form S-8 or S-4) with the Securities and
Exchange Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position
<PAGE>
within the meaning of Section 16 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder with respect to, any shares of capital
stock of the Company or any securities convertible into or exercisable or
exchangeable for such capital stock, or publicly announce an intention to
effect any such transaction, for a period of 180 days after the date of the
Final Prospectus, other than shares of Common Stock disposed of as bona
fide gifts approved by Salomon Smith Barney Inc. The Company will not take,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result, under the Exchange
Act or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and filing
with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, the
Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, and
all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (iv) the printing (or reproduction) and delivery of this
Agreement, any blue sky memorandum and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of
the Securities; (v) the registration of the Securities under the Exchange
Act and the listing of the Securities on the Nasdaq National Market; (vi)
any registration or qualification of the Securities for offer and sale
under the securities or blue sky laws of the several states (including
filing fees and the reasonable fees and expenses of counsel for the
Underwriters relating to such registration and qualification); (vii) any
filings required to be made with the National Association of Securities
Dealers, Inc. (including filing fees and the reasonable fees and expenses
of counsel for the Underwriters relating to such filings); (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers
of the Securities; (ix) the fees and expenses of the Company's accountants
and the fees and expenses of counsel (including local and special counsel)
for the Company; and (x) all other costs and expenses incident to the
performance by the Company of its obligations hereunder.
(i) that in connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Salomon Smith Barney will
notify the Company as to which Participants will need to be so restricted.
The Company will direct the transfer restrictions upon such period of time.
<PAGE>
(j) to pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
6. Conditions to the Obligations of the Underwriters. The obligations
of the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM on the Business Day following
the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if
filing of the Prospectus, or any supplement thereto, is required pursuant
to Rule 424(b), the Prospectus, and any such supplement, will be filed in
the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company shall have caused Reboul, MacMurray, Hewitt, Maynard &
Kristol, counsel for the Company, to have furnished to the Representatives
their opinion, dated the Closing Date and addressed to the Representatives,
to the effect that:
(i) each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own or lease, as
the case may be, and to operate its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification, except
where the failure as to due qualification to do business would not
have a Material Adverse Effect, individually or in the aggregate.
<PAGE>
(ii) all the outstanding shares of capital stock of each of the
Subsidiaries have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company directly free and clear of any
perfected security interest and, to the knowledge of such counsel,
after due inquiry, any other security interest, claim, lien or
encumbrance;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable;
the Securities have been duly and validly authorized, and, when issued
and delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities are
duly listed, and admitted and authorized for trading, subject to
official notice of issuance and evidence of satisfactory distribution,
on the Nasdaq National Market; the certificates for the Securities are
in valid and sufficient form; the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities from the Company except for
such rights of WCAS Capital Partners II, L.P. as have been effectively
waived; and, except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations
to issue, or rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership interests in
the Company are outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or the Subsidiaries or its or their property of a character
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Prospectus, and to the knowledge of such
counsel, there is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required; and the statements included in the
Prospectus under the headings "Risk Factors -- Proposed Healthcare
Data Confidentiality Legislation," "Risk Factors--Dependence on
Intellectual Property; Risk of Infringement," "Business -- Government
Regulation," "Business -- Legal Proceedings" and
"Business--Intellectual Property" fairly summarize the legal matters
therein described;
(v) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the Prospectus (other than the financial statements and
other financial information contained therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the rules and
regulations thereunder; and such counsel has no reason to believe that
on the Effective Date or at the Execution Time the Registration
Statement contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus
as of its date and on the Closing Date included or includes any untrue
statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in each
case, other than the financial statements and other financial
information contained therein, as to which such counsel need express
no opinion);
<PAGE>
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company"
as defined in the Investment Company Act of 1940, as amended;
(viii) no consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such other
approvals (specified in such opinion) as have been obtained;
(ix) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or
the Subsidiaries, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company or the Subsidiaries are a party or bound or to which its or
their property is subject, to the extent such document is filed with
the Commission as an exhibit to the Registration Statement or its
<PAGE>
existence is otherwise known to such counsel, or (iii) any statute,
law, rule, regulation, judgment, order or decree applicable to the
Company or the Subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or the Subsidiaries or
any of their properties; and
(x) to the knowledge of such counsel, no holders of securities of
the Company have rights to the registration of such securities under
the Registration Statement except for such rights of WCAS Capital
Partners II, L.P. as have been effectively waived and the rights of
Medic Computer Systems, Inc., which rights will not be effective until
the exercise of its warrant at least 180 days following the sale of
the Securities to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the States
of Delaware and New York or the Federal laws of the United States, to the
extent they deem proper and specified in such opinion, upon the opinion of
other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (B) as to matters of fact,
to the extent they deem proper, on certificates of responsible officers of
the Company and public officials. References to the Prospectus in this
paragraph (b) include any supplements thereto at the Closing Date.
(c) The Representatives shall have received from Dewey Ballantine LLP,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date and addressed to the Representatives, with respect to the issuance and
sale of the Securities, the Registration Statement, the Prospectus
(together with any supplement thereto) and other related matters as the
Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectus, any
supplements to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
<PAGE>
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no Material Adverse Effect.
(e) The Representatives shall have received letters addressed to you
dated the date hereof and the Closing Date from Deloitte & Touche LLP and
KPMG Peat Marwick LLP, each independent certified public accountants,
substantially in the forms heretofore approved by you.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (e) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or otherwise), earnings, business or
properties of the Company and the Subsidiaries taken as a whole, whether or
not arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any supplement
thereto) the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the sole judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Registration
Statement (exclusive of any amendment thereof) and the Prospectus
(exclusive of any supplement thereto).
(g) The Securities shall have been listed and admitted and authorized
for trading on the Nasdaq National Market and satisfactory evidence of such
actions shall have been provided to the Representatives.
(h) At or prior to the Execution Time, the Company shall have
furnished to the Representatives a letter substantially in the form of
Exhibit A hereto from each officer, director and certain stockholders of
the Company, whose aggregate holdings of Common Stock represent 8,066,277
shares of Common Stock (97.7% of the total outstanding Common Stock),
addressed to the Representatives.
(i) The Company shall have provided evidence to the Underwriters, in
form and substance satisfactory to the Representatives, that concurrently
with the Closing (i) the Senior Subordinated Note (as defined in the
Prospectus) will be repaid in full and (ii) outstanding indebtedness under
the Credit Facility (as defined in the Prospectus) will be reduced in the
manner set forth in the Prospectus under the heading "Use of Proceeds" and
(iii) the Recapitalization (as defined in the Prospectus) will be
completed.
<PAGE>
(j) The Company shall have provided evidence to the Underwriters, in
form and substance satisfactory to the Representatives, that the Amended
Credit Facility has been executed on the terms set forth in the Prospectus.
(k) The Company shall have provided evidence to the Underwriters, in
form and substance satisfactory to the Representatives, that the Company's
Certificate of Incorporation has been amended to provide for the issuance
of up to 5,000,000 shares of Preferred Stock as set forth in the Prospectus
under the headings "Risk Factors--Potential Adverse Effect of Anti-Takeover
Provisions," "Description of Capital Stock" and "Description of Capital
Stock--Preferred Stock."
(l) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancelation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Dewey Ballantine LLP, counsel for the Underwriters,
at 1301 Avenue of the Americas, New York, New York, on the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each
Underwriter and each person who controls any Underwriter within the meaning
of either the Act or the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
<PAGE>
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for
the registration of the Securities as originally filed or in any amendment
thereof, or in any Preliminary Prospectus or the Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein; provided further, that with respect to
any untrue statement or omission of material fact made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 8(a) shall
not inure to the benefit of any Underwriter from whom the person asserting
any such loss, claim, damage or liability purchased the securities
concerned, to the extent that any such loss, claim, damage or liability of
such Underwriter occurs under the circumstance where it shall have been
determined by a court of competent jurisdiction by final and nonappealable
judgment that (w) the Company had previously furnished copies of the
Prospectus to the Representatives, (x) delivery of the Prospectus was
required by the Act to be made to such person, (y) the untrue statement or
omission of a material fact contained in the Preliminary Prospectus was
corrected in the Prospectus and (z) there was not sent or given to such
person, at or prior to the written confirmation of the sale of such
securities to such person, a copy of the Prospectus. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
(b) The Company agrees to indemnify and hold harmless Salomon Smith
Barney and each person, if any, who controls Salomon Smith Barney within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("Salomon Smith Barney Entities"), from and against any and
all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) (i) caused by any
untrue statement or alleged untrue statement of a material fact contained
in the prospectus wrapper material prepared by or with the consent of the
Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary
prospectus, or caused by any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statement therein, when considered in conjunction with the Prospectus or
any applicable preliminary prospectus, not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of the shares
<PAGE>
which immediately following the effective of the Registration Statement,
were subject to a properly confirmed agreement to purchase; or (iii)
related to, arising out of, or in connection with the Directed Share
Program, provided that, the Company shall not be responsible under this
subparagraph (iii) for any losses, claim, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Salomon Smith Barney
Entities.
(c) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but
only with reference to written information relating to such Underwriter
furnished to the Company by or on behalf of such Underwriter through the
Representatives specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to
any liability which any Underwriter may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the
cover page regarding delivery of the Securities, the legend in block
capital letters on page 2 related to stabilization, syndicate covering
transactions and penalty bids and, under the heading "Underwriting" or
"Plan of Distribution," (i) the sentences related to concessions and
reallowances and (ii) the paragraph related to stabilization, syndicate
covering transactions and penalty bids in any Preliminary Prospectus and
the Prospectus constitute the only information furnished in writing by or
on behalf of the several Underwriters for inclusion in any Preliminary
Prospectus or the Prospectus.
(d) The Company hereby confirms that at its request Salomon Smith
Barney has without compensation acted as "qualified independent
underwriter" (in such capacity, the "QIU") within the meaning of Rule 2720
of the Conduct Rules of the National Association of Securities Dealers,
Inc. ("Rule 2720") in connection with the offering of the Offered
Securities. The Company agrees to indemnify and hold harmless the QIU, the
directors, officers, employees and agents of the QIU and each person who
controls the QIU within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal
<PAGE>
or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and
in conformity with written information furnished to the Company by or on
behalf of the QIU through the Representatives specifically for inclusion
therein. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(e) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a), (b), (c) or (d)
above unless and to the extent it did not otherwise learn of such action
and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve
the indemnifying party from any obligations to any indemnified party other
than the indemnification obligation provided in paragraph (a), (b), (c) or
(d) above. The indemnifying party shall be entitled to appoint counsel of
the indemnifying party's choice at the indemnifying party's expense to
represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be
responsible for the fees and expenses of any separate counsel retained by
the indemnified party or parties except as set forth below); provided,
however, that such counsel shall be satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall
have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses
of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would, under any
applicable standard of professional conduct as determined by such
indemnified party, present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
<PAGE>
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding. It is understood, however,
that the Company shall, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the fees and expenses of only one separate firm of attorneys (in addition
to any local counsel) at any time for all such Underwriters and controlling
persons, which firm shall be designated in writing by Salomon Smith Barney.
Notwithstanding anything contained herein to the contrary, if indemnity may
be sought pursuant to Section 8(b) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local
counsel) for Salomon Smith Barney for the defense of any losses, claims,
damages and liabilities arising out of the Directed Share Program, and all
persons, if any, who control Salomon Smith Barney within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act.
(f) In the event that the indemnity provided in paragraph (a), (b),
(c) or (d) of this Section 8 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the Company and the
Underwriters severally agree to contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) (collectively
"Losses") to which the Company and one or more of the Underwriters may be
subject in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Underwriters on
the other from the offering of the Securities; provided, however, that in
no case shall (i) any Underwriter (except as may be provided in any
agreement among underwriters relating to the offering of the Securities) be
responsible for any amount in excess of the underwriting discount or
commission applicable to the Securities purchased by such Underwriter
hereunder or (ii) the QIU in its capacity as "qualified independent
underwriter" (within the meaning of Rule 2720) be responsible for any
amount in excess of the compensation received by the QIU for acting in such
capacity. If the allocation provided by the immediately preceding sentence
is unavailable for any reason, the Company and the Underwriters severally
shall contribute in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the
one hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall
be deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by it, and benefits received by the
Underwriters shall be deemed to be equal to the total underwriting
discounts and commissions, in each case as set forth on the cover page of
the Prospectus. Benefits received by the QIU in its capacity as "qualified
independent underwriter" shall be deemed to be equal to the compensation
received by the QIU for acting in such capacity. Relative fault shall be
<PAGE>
determined by reference to, among other things, whether any untrue or any
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information provided by the
Company on the one hand or the Underwriters on the other, the intent of the
parties and their relative knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (f), no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an Underwriter within the meaning
of either the Act or the Exchange Act and each director, officer, employee
and agent of an Underwriter shall have the same rights to contribution as
such Underwriter, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (f).
9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
<PAGE>
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or National Market, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war, or other calamity or crisis the effect of
which on financial markets is such as to make it, in the sole judgment of the
Representatives, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancelation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney General Counsel (fax no.:
(212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney, at
388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; or,
if sent to the Company, will be mailed, delivered or telefaxed to (516) 542-4508
and confirmed to it at 90 Merrick Avenue, Suite 501, East Meadow, New York
11554, attention of the Legal Department.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement,
shall have the meanings indicated.
<PAGE>
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus included
in the Registration Statement at the Effective Date that omits Rule 430A
Information.
"Prospectus" shall mean the prospectus relating to the Securities that
is first filed pursuant to Rule 424(b) after the Execution Time or, if no
filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a) hereof.
"Salomon Smith Barney" shall mean Salomon Smith Barney Inc.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
MedE America Corporation
By: \s\ T P Staudt
Name: Thomas P. Staudt
Title: CEO
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Bear, Stearns & Co. Inc.
William Blair & Company, L.L.C.
By: Salomon Smith Barney Inc.
By: \s\ David Gately
Name: David F. Gately
Title: Managing Director
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
Number of
Underwritten
Securities to
Underwriters be Purchased
- ------------ ------------
Salomon Smith Barney Inc.................................... 1,141,800
Bear, Stearns & Co. Inc. ................................... 1,141,800
William Blair & Company, L.L.C. ............................ 1,141,800
BancBoston Robertson Stephens Inc........................... 70,000
BT Alex. Brown Incorporated................................. 70,000
CIBC Oppenheimer Corp....................................... 70,000
Credit Suisse First Boston Corporation...................... 70,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 70,000
Goldman, Sachs & Co. ....................................... 70,000
Lazard Freres & Co. LLC .................................... 70,000
Morgan Stanley & Co. Incorporated........................... 70,000
Adams, Harkness & Hill, Inc................................. 45,000
Robert W. Baird & Co. Incorporated.......................... 45,000
J.C. Bradford & Co. ........................................ 45,000
Dain Rauscher Wessels, A Division of Dain Rauscher
Incorporated (Common Stock).......................... 45,000
Friedman, Billings, Ramsey & Co., Inc....................... 45,000
Gruntal & Co., L.L.C........................................ 45,000
Brenner Securities Corporation.............................. 45,000
Interstate/Johnson Lane Corporation......................... 45,000
Morgan Keegan & Company, Inc................................ 45,000
Needham & Company, Inc. .................................... 45,000
Pacific Growth Equities, Inc................................ 45,000
Pennsylvania Merchant Group Ltd ............................ 45,000
The Robinson-Humphrey Company, LLC.......................... 45,000
SunTrust Equitable Securities Corporation................... 45,000
Total..................................... 4,615,400
<PAGE>
[Form of Lock-Up Agreement] EXHIBIT A
[Letterhead of officer, director or shareholder of
Corporation]
MedE AMERICA CORPORATION
Initial Public Offering of Common Stock
June ___, 1998
Smith Barney Inc.
William Blair & Company, L.L.C.
Volpe Brown Whelan & Company, LLC
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between MedE AMERICA
Corporation, a Delaware corporation (the "Company"), and each of you as
Underwriters named therein, relating to an underwritten initial public offering
of Common Stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Smith Barney Inc., sell, offer to sell, solicit an offer to purchase,
contract to sell, grant any option to sell, pledge or otherwise dispose of, or
file (or participate in the filing of) a registration statement with the
Securities and Exchange Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder with respect to, any shares of capital stock of the
Company or any securities convertible into or exercisable or exchangeable for
such capital stock, or publicly announce an intention to effect any such
transaction, for a period of 180 days after the date of the Final Prospectus,
other than shares of Common Stock disposed of as bona fide gifts approved by
Smith Barney Inc.
<PAGE>
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
__________________________________
Stockholder Name
By:_______________________________
Name:
Title:
Address:
Exhibit 10.2
LETTER AMENDMENT AND WAIVER NO.1
Dated as of February 5, 1999
To the banks and other financial institutions
(collectively, the "Lenders") parties
to the Credit Agreement referred to
below and to NationsBank, N.A., as
administrative and collateral agent
(the "Administrative Agent")
for the Lenders and NationsBanc
Montgomery Securities LLC,
as Syndication Agent thereunder
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of January 26, 1999 (as
amended, supplemented or otherwise modified through the date hereof, the "Credit
Agreement") among the undersigned and you. Capitalized terms not otherwise
defined in this Letter Amendment and Waiver No. 1 (the "Letter Amendment") have
the same meanings as specified in the Credit Agreement.
Section 1. Waiver. The Lender and the Administrative Agent hereby
agree that, notwithstanding Section 2.02(b)(A) and (B) of the Credit Agreement,
the Borrower may select (i) Eurodollar Rate Advances for fifty percent (50%) of
each Working Capital Advance and (ii) Base Rate Advances for the remaining fifty
percent (50%) of each Working Capital Advance, in each case, made during the
period commencing with the Initial Extension of Credit to the date ending one
month thereafter (subject to satisfaction of the notice of borrowing
requirements set forth in Section 2.02(a)).
Section 2. Amendment to the Credit Agreement. The Credit Agreement is,
effective as of the date of this Letter Amendment, hereby amended as follows:
(a) The last paragraph of Section 5.01(n)(ii)(J) of the Credit
Agreement is amended to insert the word "reasonable" prior to the phrase
"best efforts" in the third line therein.
(b) Section 5.01(o) of the Credit Agreement is hereby deleted in its
entirety.
(c) Section 9.07(d) of the Credit Agreement is amended to delete the
phrase "[may][shall]" in the seventh line therein and substitute therefor
the word "shall".
(d) Schedule 4.01(b)to the Credit Agreement is hereby
<PAGE>
deleted in its entirety and the attached Schedule 4.01(b) is substituted
therefor.
(e) Schedule 4.01(y) Attachment B to the Credit Agreement is hereby
deleted in its entirety and the attached Schedule 4.01(y) Attachment B is
substituted therefor.
(f) Schedule 5.02(a) to the Credit Agreement is hereby deleted in its
entirety and the attached Schedule 5.02(a) is substituted therefor.
Section 3. Effectiveness and Effect on the Loan Documents. (a) This
Letter Amendment shall become effective as of the date first above written when,
and only when, the Administrative Agent shall have received counterparts of this
Letter Amendment executed by the Agents, NationsBank N.A., as Lender, the
Borrower and the Guarantors.
(b) On and after the effectiveness of this Letter Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Credit Agreement, and each reference in
the Notes and each of the other Loan Documents to "the Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement, as amended by
this Letter Amendment.
(c) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Letter Amendment, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents, in each case as amended by this Letter Amendment. The execution,
delivery and effectiveness of this Letter Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or the Administrative Agent under the Credit Agreement or any of the
Loan Documents, nor constitute a waiver of any provision of the Credit Agreement
any of the Loan Documents.
Section 4. Miscellaneous. This Letter Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Letter Amendment by telecopier
shall be effective as delivery of a manually executed counterpart of this Letter
Amendment.
<PAGE>
Section 5. Governing Law. This Letter Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
Very truly yours,
MEDE AMERICA CORPORATION,
as Borrower
By
Title: President
Name: Thomas P. Staudt
Agreed as of the date first above written:
NATIONSBANK, N.A.,
as Administrative Agent and as Lender
By
Title:
NATIONSBANC MONTGOMERY
SECURITIES LLC, as Syndication Agent
By
Title:
<PAGE>
Section 5. Governing Law. This Letter Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
Very truly yours,
MEDE AMERICA CORPORATION,
as Borrower
By
Title:
Agreed as of the date first above written:
NATIONSBANK, N.A.,
as Administrative Agent and as Lender
By
Title:
Name: Daniel Rencricca
NATIONSBANC MONTGOMERY
SECURITIES LLC, as Syndication Agent
By
Title:
Name: Daniel Rencricca
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned, as Guarantors under the Credit Agreement,
hereby consents to the Letter Amendment and hereby confirms and agrees that
notwithstanding the effectiveness of the Letter Amendment, the Guaranty is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects and the Collateral Documents to which such Guarantor
is or will be a party as of the date hereof and all of the Collateral described
therein do, and shall continue to, secure the payment of all of the Secured
Obligations (as defined therein).
MEDE AMERICA CORPORATION
OF OHIO, as Guarantor
By
Title: President
Name: Thomas P. Staudt
HEALTHCARE INTERCHANGE, INC.,
as Guarantor
By
Title: President
Name: Thomas P. Staudt
<PAGE>
Schedule 4.01(b)
Subsidiaries
LEGAL NAME: Healthcare Interchange, Inc. ("HII")
TYPE OF ENTITY: corporation
JURISDICTION OF INCORPORATION: Missouri
AUTHORIZED EQUITY INTERESTS: 66,250 shares of Class A Common
Stock, $1 par value, 66,250 shares of Class B Common Stock, $1
par value, 56,000 shares of Class C Common Stock, $1 par value,
and 62,500 shares of Preferred Stock, $1 par value.
OUTSTANDING EQUITY INTERESTS: 35,000 shares of Class A Common Stock, 35,000
shares of Class B Common Stock, 20,001 shares of Class C Common
Stock and 62,500 shares of Preferred Stock. All outstanding
Equity Interests of Healthcare Interchange, Inc. are owned of
record and beneficially by the Borrower.
LEGAL NAME: MedE America Corporation of Ohio ("MedE Ohio")
FORMERLY KNOWN AS: General Computer Corporation
TYPE OF ENTITY: corporation
JURISDICTION OF INCORPORATION: Ohio
AUTHORIZED EQUITY INTERESTS: 10,000,000 shares of Common Stock,
$.10 par value, and 1,000,000 shares of Preferred Stock, $.10 par
value.
OUTSTANDING EQUITY INTERESTS: 100 shares of Common Stock. All
outstanding Equity Interests of MedE America Corporation of Ohio
are owned of record and beneficially by the Borrower.
<PAGE>
Schedule 401(y), Parts A and B, Attachment "B"
<TABLE>
<CAPTION>
Capital Leases:
Lessor Lease Leased Lease Expira- Monthly Jul-98 Aug-98 Sep-98 Oct-98
Number Equipment Term tion Lease Pmt
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alco Capital Resource 16,584 Canon Copier 60 May-98 838 838 838 838 838
CIT 65,222,005 Computer Equip 60 Feb-98 1,169 1,169 1,169 1,169 1,169
CIT 65,222,002 Computer Equip 60 Jul-98 1,056 1,056
CIT 65,222,003 Computer Equip 60 Aug-98 898 898 898
CIT 65,222,004 Computer Equip 60 Sep-98 690 690 690 690
CIT 89953-001*Computer Equip
*The total amount of payments under this capital lease is $155,470.
Wheeling Nat'l Bank 33908-02 Computer Equip 60 Oct-98 288 288 288 288 288
Wheeling Nat'l Bank 33908-01 Stratapak Drives 60 Sep-98 618 618 618 618
Hewlett Packard 4126-38351 Computer Equip 60 Jun-99 6,638 6,638 6,638 6,638 6,638
Icon cash flow partner 70,239.0 Computer Equip 60 Aug-99 1,191 1,191 1,191 1,191 1,191
Stratus Capital st607-60702 Stratus Equip 18 May-99 7,414 7,414 7,414 7,414 7,414
Sanwa Leasing Corp 0002-1166898 Cust Serv 5 Pentium PC's 36 Jun-99 436 436 436 436 436
Alan Acceptance 626190-20916 Acctg Server/Sales Logics 24 Nov-99 2,657 2,657 2,657 2,657 2,657
Colonial Pacific Alan Accept 20977 Computer Equipment 24 Dec-99 2,016 2,016 2,016 2,016 2,016
Advanta US Bankcorp 001-0236308 Laser Printer Stockton 60 Jan-01 684 684 684 684 684
Colonial Pacific US Bankcorp 126509001 Computer Equipment Stockton 36 Jun-99 1,128 1,128 1,128 1,128 1,128
Dana Commerical 438466 Computer Equipment Stockton 48 Nov-99 874 874 874 874 874
Net Credit May-99 935 935 935 935 935
Data Gen'l MedE Inc. Data Gen'l Equipmt Apr-00 4,037 4,037 4,037 4,037 4,037
Heller Fin'l MPC Data Gen'l Equipmt Aug-98 785 785 785
Mellon leasing MPC Data Gen'l Equipmt Sep-98 4,989 4,989 4,989 4,989
Moleasco (Dental) 4556 Burster 36 Aug-99 274 274 274 274 274
Moleasco (Dental) 4797 Auto Folding Machine 36 Sep-99 199 199 199 199 199
I.C. Capital (Dental) 3339252 Computer Equip 60 Aug-00 2,578 2,578 2,578 2,578 2,578
Data General 36 Jun-01 5,824 5,824 5,824 5,824 5,824
----- ----- ----- -----
Capital Lease Payments 48,216 47,160 45,477 39,180
------ ------ ------ ------
<PAGE>
Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alco Capital Resource 838 838 838 838 838 838 838 838
CIT 1,169 1,169 1,169 1,169
CIT
CIT
CIT
CIT
Wheeling Nat'l Bank
Wheeling Nat'l Bank
Hewlett Packard 6,638 6,638 6,638 6,638 6,638 6,638 6,638 6,638
Icon cash flow partner 1,191 1,191 1,191 1,191 1,191 1,191 1,191 1,191
Stratus Capital 7,414 7,414 7,414 7,414 7,414 7,414 7,414
Sanwa Leasing Corp 436 436 436 436 436 436 436 436
Alan Acceptance 2,657 2,657 2,657 2,657 2,657 2,657 2,657 2,657
Colonial Pacific 2,016 2,016 2,016 2,016 2,016 2,016 2,016 2,016
Advanta 684 684 684 684 684 684 684 684
Colonial Pacific 1,128 1,128 1,128 1,128 1,128 1,128 1,128 1,128
Dana Commerical 874 874 874 874 874 874 874 874
Net Credit 935 935 935 935 935 935 935
Data Gen'l 4,037 4,037 4,037 4,037 4,037 4,037 4,037 4,037
Heller Fin'l
Mellon leasing
Moleasco 274 274 274 274 274 274 274 274
Moleasco 199 199 199 199 199 199 199 199
I.C. Capital (Dental) 2,578 2,578 2,578 2,578 2,578 2,578 2,578 2,578
Data General 5,824 5,824 5,824 5,824 5,824 5,824 5,824 5,824
----- ----- ----- ----- ----- ----- ----- -----
Capital Lease Payments 38,892 38,892 38,892 38,892 37,723 37,723 37,723 28,536
</TABLE>
<PAGE>
Schedule 5.02(a)
Liens on Collateral
The Borrower owns 7 certificates of deposit issued by the Bank of Akron, having
an aggregate value at maturity of $268,430. All of the Borrower's right, title
and interest in and to such certificates of deposit have been pledged, pursuant
to an Assignment of Bank Account, dated March 7, 1995, between Latpon Health
Systems Inc. (which subsequently assigned this agreement to the Borrower) and
QR Management Services Inc. ("QR"), to secure indebtedness payable to QR (the
amount of such indebtedness is less than the value of such certificates). Such
indebtedness arose pursuant to an Asset Purchase Agreement, dated as of February
1, 1995, between Latpon and QR.
MedE America Corporation of Ohio owns certain real property and improvements in
Summit County, Ohio, which it acquired subject to a mortgage granted by the
seller, William and Sherry Shultz d/b/a W.E.S. Properties ("WES"), in favor of
Park View Federal Savings and Loan Association. Pursuant to that certain pay-off
letter dated February 5, 1999 from WES to MedE America Corporation of Ohio and
as required by the installment purchase agreement, WES will release all existing
liens, security interest and other encumbrances securing any indebtedness,
liabilities or obligations relating to such property within 45 days from the
date of the Initial Extension of Credit.
Exhibit 10.3
LETTER AMENDMENT AND WAIVER NO. 2 UNDER THE LOAN DOCUMENTS
Dated as of February 25, 1999
To the banks and other
financial institutions
(collectively, the "Lenders")
parties to the Credit Agreement
referred to below and to
NationsBank, N.A., as
administrative and collateral agent
(the "Administrative Agent") for
the Lenders and NationsBanc
Montgomery Securities LLC, as
Syndication Agent thereunder
Ladies and Gentlemen:
We refer to (i) the Credit Agreement dated as of January 26, 1999 (as
amended, supplemented or otherwise modified through the date hereof, the "Credit
Agreement") among the undersigned and you and (ii) the Security Agreement dated
as of February 5, 1999 (as amended, supplemented or otherwise modified through
the date hereof, the "Security Agreement") among the undersigned and you.
Capitalized terms not otherwise defined in this Letter Amendment and Waiver No.
2 (the "Letter Amendment") have the same meanings as specified in the Credit
Agreement.
Section 1. Waiver. (a) The Lender and the Administrative Agent hereby
agree that, notwithstanding Section 5.01(n) of the Credit Agreement and Section
5(a) of the Security Agreement each date for delivery of the (i) Mortgages on
real property owned by the Borrower and the documents to be delivered in
connection therewith set forth in Section 5.01 (n)(ii)(A) through (J) of the
Credit Agreement, and (ii) Pledged Account Letters and Commingled Account
Letters specified in Section 5(a) of the Security Agreement, is hereby extended
until March 31, 1999.
(b) The Lender and the Administrative Agent hereby waive the
requirement set forth in Section 5.01(n) of the Credit Agreement that the
Borrower deliver (i) Mortgages and related documentation for the real properties
listed on Schedule 5.01(n) located in Atlanta, Georgia and Mitchel Field, New
York that are leased to the Borrower, and (ii) consents from lessors to the
terms of such leasehold Mortgages as set forth in Section 5.01(n)(ii)(y) of the
Credit Agreement unless specifically requested from time to time by the
Administrative Agent.
Section 2. Amendment to the Credit Agreement. The Credit Agreement is,
effective as of the date of this Letter Amendment, hereby amended as follows:
<PAGE>
(a) Section 5.04 of the Credit Agreement is amended to delete Section
(c) where it appears in the second instance therein in its entirety and to
amend the subsection reference for "Excluded Assigned Agreements" from
subsection "(d)" to subsection "(e)".
Section 3. Effectiveness and Effect on the Loan Documents. (a) This
Letter Amendment shall become effective as of the date first above written when,
and only when, the Administrative Agent shall have received counterparts of this
Letter Amendment executed by the Agents, NationsBank N.A., as Lender, the
Borrower and the Guarantors.
(b) On and after the effectiveness of this Letter Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder","hereof" or
words of like import referring to the Credit Agreement, and each reference in
the Notes and each of the other Loan Documents to "the Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement, as amended by
this Letter Amendment.
(c) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Letter Amendment, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents, in each case as amended by this Letter Amendment. The execution,
delivery and effectiveness of this Letter Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or the Administrative Agent under the Credit Agreement or any of the
Loan Documents, nor constitute a waiver of any provision of the Credit Agreement
or any of the Loan Documents.
Section 4. Miscellaneous. This Letter Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Letter Amendment by telecopier
shall be effective as delivery of a manually executed counterpart of this Letter
Amendment.
Section 5. Governing Law. This Letter Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
Very truly yours,
MEDE AMERICA CORPORATION,
as Borrower
By_______________________________
Title:
Agreed as of the date first above written:
NATIONSBANK, N.A.,
as Administrative Agent
By:________________________________
Title:
NATIONSBANK, N.A.,
as Lender
By:________________________________
Title:
2
<PAGE>
Section 5. Governing Law. This Letter Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
Very truly yours,
MEDE AMERICA CORPORATION,
as Borrower
By_______________________________
Title:
Agreed as of the date first above written:
NATIONSBANK, N.A.,
as Administrative Agent
By:________________________________
Title:
NATIONSBANK, N.A.,
as Lender
By:________________________________
Title:
3
<PAGE>
Section 5. Governing Law. This Letter Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
Very truly yours,
MEDE AMERICA CORPORATION,
as Borrower
By_______________________________
Title:
Agreed as of the date first above written:
NATIONSBANK, N.A.,
as Administrative Agent
By:________________________________
Title:
NATIONSBANK, N.A.,
as Lender
By:________________________________
Title:
4
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned, as Guarantors under the Credit Agreement,
hereby consents to the Letter Amendment and hereby confirms and agrees that
notwithstanding the effectiveness of the Letter Agreement, the Guaranty is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects and the Collateral Documents to which such Guarantor
is a party and all of the Collateral described therein do, and shall continue
to, secure the payment of all of the Secured Obligations (as defined therein).
MEDE AMERICA CORPORATION,
OF OHIO, as Guarantor
By___________________________
Title:
HEALTHCARE INTERCHANGE, INC.,
as Guarantor
By___________________________
Title:
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MEDE AMERICA CORPORATION FOR THE PERIOD ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 3,551
<SECURITIES> 0
<RECEIVABLES> 12,845
<ALLOWANCES> 983
<INVENTORY> 250
<CURRENT-ASSETS> 16,331
<PP&E> 10,925
<DEPRECIATION> 6,040
<TOTAL-ASSETS> 64,726
<CURRENT-LIABILITIES> 14,099
<BONDS> 0
31,823
0
<COMMON> 57
<OTHER-SE> (23,807)
<TOTAL-LIABILITY-AND-EQUITY> 64,726
<SALES> 12,006
<TOTAL-REVENUES> 12,006
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,089
<INCOME-PRETAX> (1,069)
<INCOME-TAX> 16
<INCOME-CONTINUING> (1,085)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,085)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MEDE AMERICA CORPORATION FOR THE PERIOD ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 2,384
<SECURITIES> 0
<RECEIVABLES> 13,111
<ALLOWANCES> 468
<INVENTORY> 184
<CURRENT-ASSETS> 15,840
<PP&E> 12,665
<DEPRECIATION> 7,090
<TOTAL-ASSETS> 74,940
<CURRENT-LIABILITIES> 11,922
<BONDS> 0
32,423
0
<COMMON> 57
<OTHER-SE> (25,288)
<TOTAL-LIABILITY-AND-EQUITY> 74,940
<SALES> 12,974
<TOTAL-REVENUES> 12,974
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,185
<INCOME-PRETAX> (984)
<INCOME-TAX> 68
<INCOME-CONTINUING> (1,052)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,052)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
